Quiggin predicts the ‘end for WTO’

meta-cre­ation_­date: 12 Novem­ber, 2003 JQ has appar­ent­ly “con­vinced himself”:http://mentalspace.ranters.net/quiggin/archives/001358.html that the WTO’s rejec­tion of the US steel safe­guard action could spell “the end of the line” for the Orga­ni­za­tion. bq. As I’ve pre­vi­ous­ly men­tioned, the WTOmade lots of ene­mies by over­reach­ing itself in the 1990s, on the assump­tion that big-coun­try gov­ern­ments would always back it up in the end. The wis­dom of that assump­tion is now being test­ed. It’s a some­what pre­ma­ture obit­u­ary. The big coun­tries back the WTO because they believe it’s in their own inter­ests to do so: the for­eign pol­i­cy costs of return­ing to more tra­di­tion­al forms of set­tling trade con­flicts (remem­ber WWII?) are too big. They much pre­fer dis­pute set­tle­ment. What’s the evi­dence on dis­putes? Over and over, in the 8 years of WTO’s exis­tence, the US, EU and Japan have com­plied with deci­sions against them (see the score­card[⇒ relat­ed sto­ry] in my ear­li­er sto­ry). Even in multi­bil­lion-dol­lar cas­es such as the EU ‘bananas’ case (a $50 bil­lion indus­try at EU whole­sale prices) which the EU lost. Com­pre­hen­sive­ly. Three times. To devel­op­ing coun­tries. JQ says the ‘WTO made a lot of ene­mies’. It’s cer­tain­ly true that there are thou­sands of people—let’s say, even a mil­lion or two—wiling to make a lot of noise, destroy some prop­er­ty, cause dis­rup­tion and even com­mit sui­cide to express their objec­tions to WTO. But the pre­pon­der­ance of evi­dence points, nev­er­the­less, to the wild pop­u­lar­i­ty of WTO. Since the 1990’s the WTO mem­ber­ship has expand­ed from about 110 gov­ern­ments to near­ly 150; and there are 27 more coun­tries press­ing to get in. So who exact­ly do it’s ‘ene­mies’ rep­re­sent? On whose behalf do they fight? The steel case is far from an exam­ple of ‘over­reach’. The Appel­late Body that decid­ed this case against US steel pro­tec­tion was set up with sup­port from the USA and EU in 1994. In this case it did noth­ing more than inter­pret a rule that has been in place, with US sup­port, since 1948. In fact, from a legal point of view, this case was a replay (more or less) of the WTO deci­sion on US bar­ri­ers to Aus­tralian lamb ear­li­er this year; a case that didn’t bring any sim­i­lar pre­dic­tions of doom. Is there, in fact, any­thing that jus­ti­fies Quiggan’s skep­ti­cism? Where the big pow­ers are con­cerned, the hon­est answer is ‘prob­a­bly’. Lots of things. Bush may well try to ‘tough it out’ over steel. But, JQ’s instincts aside, the evi­dence still points in the oth­er direc­tion. There are only two WTO dis­putes where the los­er has not com­plied (yet) with the rul­ing: one involv­ing an EU ban on imports of US beef alleged­ly con­tain­ing growth hor­mones (it doesn’t) and one on the US income-tax sub­sidy to firms that own off-shore export cor­po­ra­tions. The US has with­drawn retal­ia­to­ry action on the Hor­mones case and the EU, although ‘huff­ing and puff­ing’, has not yet tak­en any retal­ia­to­ry steps on FSC. Why? Because the for­eign pol­i­cy costs are high and retal­i­a­tion sim­ply penal­izes con­sumers in the coun­try tak­ing the action: it doesn’t resolve the prob­lem. But even with­out retal­i­a­tion, the two big pow­ers have suf­fi­cient rec­i­p­ro­cal lever­age to keep the pres­sure up. The EU is stonewalling on hormone/beef, so the US Con­gress is dick­er­ing over means to resolve the FSC tax prob­lem (it’s made three attempts). At the moment, they’ve fought this to a stand-off. What­ev­er hap­pens, expe­ri­ence sug­gests that they will avoid seri­ous­ly under­min­ing the cred­i­bil­i­ty of the WTO sys­tem of rules and dis­putes. They both under­stand only too well what Chi­na might do in future if they weak­en the WTO.

Peter Gallagher

Peter Gallagher is student of piano and photography. He was formerly a senior trade official of the Australian government. For some years after leaving government, he consulted to international organizations, governments and business groups on trade and public policy.

He teaches graduate classes at the University of Adelaide on trade research methods and the role of firms in trade and growth and tweets trade (and other) stuff from @pwgallagher